UAE’s second quarter results
Emaar’s second quarter results beat the estimates of both the investment banking firm EFG-Hermes and Al Mal Capital Investment Bank. The income growth was mainly the result of the rental income which recorded a growth of 357 percent quarter-on-quarter, and of newly completed homes that are being handed over in Turkey and Pakistan.
Emaar also wrote-off the full remaining balance of its exposure to US Subsidiary JL Homes, which decreased the value of its development properties and lowered the firm’s total debt. According to Al Mal Capital, the write-down will lead to a positive reaction in the stock market, but investors should “avoid the stock” until there is more clarity regarding the merger of Emaar with Dubai Holdings’ three real estate entities. While Al Mal Capital kept Emaar’s rating under review, EFG-Hermes upgraded the stock to neutral, while sharing Al Mal Capital’s opinion on avoiding it at the moment.
Union Properties, a Dubai-based property investment developer, had its revenue results categorized by EFG-Hermes as “strongly disappointing.” It also described the liquidity position of the company as “far from healthy,” and predicted it would further deteriorate if deliveries of properties continued to be slower than expected, with rentals being filled up very slowly and adding to the difficulties of receiving cash payments. EFG-Hermes said it is likely to reduce the revenue and earnings forecasts for the company in fiscal year 2009 due to the slow deliveries and the expected spill over into 2010. Due to the weak results, Al Mal Capital also downgraded Union Properties rating.
Abu Dhabi real estate company Sorouh showed better results than expected, and revenue was 43 percent higher than the estimates of EFG-Hermes. This is due to the company recognizing the sale of 11 land plots on Saraya, which comprised around 80 percent of the recorded revenue. While the revenue result was surprising, the operating income was 11.3 percent less than expected, given the low profitability of the revenue mix, as stated by the investment banking firm. EFG-Hermes downgraded the company’s rating to neutral due to the perceived slowdown in sales in Abu Dhabi, the difficulty of receiving payments and the possible need to secure funding for new projects. However, the fundamental valuation of the company remains above the current share price with a buy rating and a long-term fair value of $2.40 for its share compared, to the current price of $0.23.
Aldar, an Abu Dhabi real estate development, management and investment company, had second quarter results showing losses that were higher than estimated, according to EFG-Hermes. This is mainly due to the absence of land sales in the second quarter, as well as the slowdown in delivery and the change in prices. Still, Aldar is making subsequent progress on projects under construction. It spent around $1.3 billion on construction in the second quarter and issued $259 million in five-year bonds which increased its liability to $9.7 billion. EFG-Hermes maintained the neutral rating for Aldar while adding that “we remain cautious about the relatively high leverage, and the absence of new sales putting pressure on the company’s cash burn rate.” Al Mal Capital also maintained the market perform rating of the company and added that long-terms investors should remain away from the stock until late 2009, estimating that it will start picking up in the second quarter of 2010.
Saudi and UAE construction delays
More than 400 projects worth more than $300 billion have been put on hold or canceled due to the global downturn in the UAE real estate market, according to the UAE-based research firm Proleads. The report added that more than 750 projects are currently under construction, while 450 are completed. The research company also wrote that the UAE market is expected to stabilize by the end of 2009, and show signs of the recovery next year.
In another report on the Saudi Arabia real estate sector, Proleads said that about 80 projects were delayed or canceled, and 350 are still under construction. Proleads based its research on 720 projects worth more than $430 billion across all sectors including education, healthcare, residential, commercial and others. Out of these, projects worth around $20 billion have been directly affected since the global slowdown began. The high risk lies in few projects which make up 2 percent of the number of developments but constitute 43 percent of the total budget.
Still, the Saudi market is considered “one of the most active in the world since it grows its infrastructure to meet domestic demand,” said Emil Rademeyer, director of Proleads Global. “Our cash-flow projections show the Saudi Arabian industry will continue building from a position of strength well into 2010, whereas other Arabian Gulf markets continue to seek stability.”
De-population in Qatar
According to new reports, the ongoing financial crisis is not the only factor threatening the growth of the Qatari real estate market. Merrill Lynch warns that the gas-driven infrastructure investment will halt by 2012. Consequently, a large number of expatriates — who represent 90 percent of the workforce and who are mainly blue collar workers — will return to their home countries, thus leaving a large number of apartments vacant and creating oversupply. Another report by the Qatar Oman Investment Company, a multi-sector investment company, said that “de-population” is already occurring, with the latest figures showing population numbers falling from 1.9 million to 1.6 million. The investment company said that there are around 15,000 vacant apartments across Doha, with many more coming online upon completion. Qatar Oman Investment Company CEO Nasser Mohamed al-Mansoory expected rents in the next two years to go back to their original levels, before the boom and inflation began to take effect. “See the newspapers. Their classifieds are full of ads for all categories of vacant houses day in and day out, clearly signaling that supply far exceeds demand,” he said.
Lebanon real estate and tourism sectors grow
The Lebanese real estate and tourism sectors witnessed a heavy inflow of investments this summer, mainly from high income Lebanese expatriates and Gulf investors, according to a Coldwell Banker report published in Kuwait’s Al Qabas newspaper. Expatriates represent 40 percent of the real estate investments, according to the report, followed by Kuwaitis, Emiratis, Saudis, Qataris and Omanis.
Gulf investors are finding many investment opportunities in residential and commercial properties, especially income generating developments like towers, hotels and land suitable for construction. They are also buying luxury apartments, villas and palaces in urban and rural areas.
Another report, published by the Inter-Arab Investment Guarantee Corporation in July, said that UAE investors plowed some $1.1 billion into the Lebanese real estate sector in 2008, constituting around 42 percent of the total Arab investment in the country for that year.
Coldwell Banker’s report also discussed the overall situation of the real estate sector in Lebanon. It stated that construction permits rose by 4 percent year-on-year in the first half of 2009, while sales transactions stabilized. The report adds that in the last five years, the value of real estate sales and construction permits increased by 16 percent on yearly average. Real estate prices have been rising by 25 to 30 percent on average for the last three years, and hit their highest increase of 50 to 60 percent in 2008 after the Doha accord. Since the crisis began, prices have corrected by 10 to 15 percent, which is a moderate decrease compared to the region. The report also expects demand to increase in the months following the calm parliamentary elections, which will increase the attractiveness of the Lebanese real estate sector in the coming period.
